A recent scandal involving a Green Beret arrested for betting on a classified U.S. raid may be more than an isolated incident, as a new study suggests that it could be an extreme example of the small group of informed traders who actually influence prices on platforms like Polymarket.
The study, conducted by researchers from London Business School and Yale, analyzed 1.72 million accounts and $13.76 billion in trading volume on Polymarket from 2023 to 2025. The findings indicate that just 3% of traders are responsible for most price discovery, consistently predicting outcomes and moving prices in the right direction. In contrast, the remaining 97% of traders do not, instead providing liquidity and generating volume, but ultimately losing money to the informed minority. To distinguish between skill and luck, the researchers simulated each trader's bets 10,000 times, keeping everything the same except the direction.
The results showed that among the biggest winners by raw profit, only 12% beat the benchmark, and many apparent winners did not sustain their performance over time. The activity of skilled traders improves market accuracy, with prices moving closer to the correct outcome, especially in the final stretch before resolution.
However, the same edge that makes skilled traders valuable to price discovery raises concerns when that information is not public or is not supposed to be. The study highlights the risk of insider trading, citing the example of the U.S.
removal of Nicolás Maduro from power in Venezuela, where three newly created Polymarket accounts placed unusually large bets before the event, collectively making over $630,000. The findings challenge the idea that prediction markets work due to the collective knowledge of the crowd, instead suggesting that they work because of the informed traders who drive price discovery.